Walmart Profit Down Due To Wage Hike; Retail Giant Will Need To Drive Higher Sales To Convince Investors

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IN PHOTO: A shopper pushes a cart in front of a Wal-Mart store in Mexico City March 24, 2015. REUTERS/Edgard Garrido

Walmart's (WMT) first-quarter earnings couldn’t perform in accordance with Wall Street’s forecast. The company believes its operating income deteriorated due to wage hike for its employees and fluctuations in currency exchange rates influenced by stronger U.S. dollar.

The shares in early Tuesday trading were dropped by 2 percent. Walmart reported revenue of US $114 billion, slipped by 0.1 percent from the same period last year. Analysts hoped for $115.6 billion, reported S&P Capital IQ. Walmart Treasurer Claire Babineaux-Fontenot said: "Currency exchange rate fluctuations had a greater than anticipated impact on this year's first quarter results. Fluctuations in currency negatively impacted net sales by approximately $3.3 billion, and similarly impacted EPS by $0.03."

The big box retailer reported an income of $3.34 billion and received $1.03 per share. But in the same quarter a year ago, Walmart made an income of $3.59 billion and $1.11 a share. Analysts expected earnings of $1.05 a share.

In February, the retail giant made the announcement of increasing the minimum wages for its employees to at least US $9 per hour, which could also go up to US $10 per hour in 2016. Charles Holley, the CFO at Walmart said according to an internal survey, the increase in remunerations has already brought a positive mood among the employees.

Meanwhile, the company said, lower gas prices have helped its sales going up in the U.S. The sales at its stores that started operating for over 13 months went up by 1.1 percent as the company witnessed a second straight quarter of increased store traffic after a period of lull.

As the retailer invests more in employees as well as its e-commerce strategies, only an increase in sales will convince its investors the strategy is working, says Brian Yarbrough, analyst with Edward Jones. "All this investment in e-commerce and wages is actually limiting their ability (to grow earnings)," he says. "Now they probably need same store sales comps of 2% plus to show any kind of leverage."

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